Servicing

The possibility of a partial sale of Washington Mutual Inc. has prompted downgrades of WaMu by Standard & Poor's Ratings Services and Fitch Ratings. S&P downgraded WaMu's counterparty credit rating from BB-minus/B to CCC/C, though it affirmed the BBB/A-3 counterparty credit rating on Washington Mutual Bank, citing "the breadth of its retail franchise." S&P attributed the downgrade to "the increased likelihood that a potential sale of the company may not involve the whole company, which increases the risk of default for holding company creditors." Fitch downgraded WaMu's long-term Issuer Default Rating from BBB-minus to B-minus and placed the company and its subsidiaries on Rating Watch Evolving, citing "the heightened uncertainty associated with WaMu's debt obligations in light of the difficult market conditions and increasingly limited options to bolster capital." A partial sale "would likely be detrimental to WaMu's holding company creditors and potentially to unsecured debtholders at the bank level because they are effectively subordinated to depositors and the considerable amount of secured financing," Fitch said.

Some 302,593 mortgages backed by Fannie Mae and Freddie Mac (1% of all the notes they guarantee) are 90 days or more past due, placing them in the "seriously delinquent" category. According to new figures released by the Federal Housing Finance Agency, Fannie and Freddie together have 30.4 million loans in their guarantee portfolio. In testimony Thursday before the House Financial Services Committee, Freddie Mac's new chief executive, David Moffett, said his company has increased the financial incentive it pays seller/servicers to participate in a new Mass Modification program for troubled borrowers. Mr. Moffett maintains that the company will help 82,000 borrowers avoid foreclosure this year.

House and Senate Democrats have agreed on most details of a $700 billion bailout plan for the credit and mortgage industries, including a provision that will allow bankruptcy judges to reduce ("cram down") the outstanding balance on troubled mortgages. The cramdown proposal is vehemently opposed by the mortgage banking industry. As of MortgageWire's deadline, Democrats were meeting with Republicans on the legislation. Among other things, the Democratic version of the bill would allow the Treasury to spend an unspecified portion of the money prior to going before an oversight board for further spending allowances. The money will be used to buy troubled mortgage-backed securities from financial service companies (including depositories) of all sizes. Republicans and the White House support Democratic language that would limit compensation for executives whose firms sell into the program.

The master servicer rating of The Bank of New York Mellon has been upgraded from RMS2-plus to RMS1-minus by Fitch Ratings. Fitch attributed the action to BNYM's "strong oversight and monitoring of its primary servicers, its continued investment in enhancing its technology, and its increasing use of automation." The company's master servicing operation is based in New Albany, Ohio. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating. The rating agency can be found online at http://www.fitchratings.com.

Nominal home prices were down 10.9% nationally in July from the level recorded a year earlier, according to the latest LoanPerformance Home Price Index. Los Angeles-Long Beach-Glendale topped the index's list of statistical areas experiencing 12-month home price declines, recording a 27.95% decrease. Oakland-Fremont-Hayward (Calif.) ranked second with a 27.28% decline, and Riverside-San Bernardino-Ontario (Calif.) finished third at 26.93%. "The recent price trend is similar to the Massachusetts and Texas house price declines in the 1980s and 1990s that took approximately two years to bottom out," said Mark Fleming, chief economist of First American CoreLogic, the Santa Ana, Calif.-based company that compiles the index. "In both cases there was stabilization in the rate of decline before the lengthy recovery in price levels." The LoanPerformance HPI provides monthly home price indices and median sales prices covering 7,575 ZIP codes and 676 counties in all 50 states and the District of Columbia, the company said. First American CoreLogic can be found online at http://www.facorelogic.com.

In a battle that has national implications, a Miami Beach city commissioner is taking on condominium lenders in Florida who don't pay what he says is their fair share of condo assessments. Jerry Libbin has formed a coalition of unit owners to lobby state legislators to force banks to pay the full assessment on units that have been taken back from borrowers. Under current law, lenders need pay only 1% of the normal fee once they foreclose on a unit. But Mr. Libbin says some banks don't even do that, and many associations have to sue lenders to recover their unpaid assessments and late fees. Worse, the Miami Beach commissioner maintains, other owners are forced to pay more than they otherwise would so they can maintain their buildings. "Banks are taking unfair advantage of condo owners who have done absolutely nothing wrong," he said. "We must stop this vicious cycle." With 23,631 associations governing a total of 1.4 million units, according to the state's business department, Florida has perhaps the greatest concentration of condos in the country. In Miami-Dade County alone, there are 4,045 buildings with 242,352 units.

In the long term, the proposed RTC-like government entity slated to buy illiquid assets appears likely to produce fundamentals that may boost mortgage-backed securities prices dramatically, according to a group that has managed investments in distressed residential MBS since late last year. The management group of Team Nation Investment Group LLC, Irvine, Calif., said they do not expect to see a significant change in MBS pricing in the short term. But even before official plans were made for the Resolution Trust Corp.-like entity, they said they were able to produce an average 31.6% return on investment on their distressed RMBS holdings since November 2007. Several market participants have shown concern about the integrity of MBS in the wake of greater-than-expected losses that have shaken the confidence of the financial markets at large. But Team Nation Investment Group fund manager Craig Chang said he believes that "with the recent government action, it further justifies that MBS are an instrument that the government believes is as important to our economy as the U.S. dollar -- it is a part of our lives."

Five classes from two series of BCF LLC mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades were as follows: series 1997-R1, class B-1, from AA to BBB, class B-2, from BB-plus to B, and class B-3, from CC/DR3 to C/DR6; and series 1997-R3, from AA to BB, and class B-2, from BB to C/DR6. All but class B-2 of series 1997-R3 were placed on Rating Watch Negative, as were classes A-4 and WAC in series 1997-R1. The collateral for the transactions consists primarily of mortgage loans purchased from the Department of Housing and Urban Development. "The mortgage loans are secured by first liens on one- to four-family residential real estate properties and had been contractually delinquent at origination," Fitch said.

Thirty-eight tranches of synthetic residential mortgage-backed securities certificates from 12 transactions issued by RESI, EASI, SASI, and RESIX have been downgraded by Moody's Investors Service. The certificates are protected by subordination, including a nonamortizing unrated tranche. In a synthetic transaction, credit protection is provided to the owner of a pool of jumbo mortgages (the protected party) similar to that provided by subordination in conventional RMBS transactions, Moody's said. The reference portfolio includes prime fixed-rate mortgages from various originators. Under an agreement with the issuer, the protected party pays a fee for the transfer of a portion of the portfolio risk, the rating agency said.

Citigroup Inc. is set to announce that it will provide $1 million of "planning grants" to help nonprofits apply for federal funding to acquire, renovate, and sell vacant real-estate-owned properties. The Housing and Economic Recovery Act, enacted July 30, set aside $3.9 billion for such activities. Eric Eve, a senior vice president of global community relations at Citi, said its grants will enable nonprofits to "better understand the REO space." Nonprofits can apply to Citi for grants of $50,000 to $100,000 in 12 cities: Oakland, Calif.; Atlanta; Chicago; Boston; Detroit; Charlotte, N.C.; Rochester, N.Y.; New York; Cleveland; Columbus, Ohio; Pittsburgh; and Houston.